Pre-need firm encountering cash flow problems

TPG Corp., another pre-need firm that offered open-ended educational plans, is reportedly experiencing cash flow problems.

An official of the Securities and Exchange Commission (SEC) said TPG is one of the pre-need firms that have held exploratory talks with the commission on how it plans to address its financial problem.

The SEC official said TPG plans to convert the payments due to planholders into equity as a way to solve its financial problem.

TPG had sought regulatory leeway after incurring a trust fund deficit. The leeway program allows a pre-need company to amortize for a period of five years its trust fund deficit.

TPG earlier said it was in talks with at least two investor-groups that will make the pre-need firm a much bigger and stronger company.

It also unveiled a new program, dubbed as Scholars Trust Fund with Equitable Pay-out for Unified Preservation (STEP-UP), an innovative and revolutionary plan to address the problem of continued availments by planholders of open-ended educational plans and ensure that more scholars still benefit from their plans.

Under the STEP-UP program, TPG will seek the approval of about 20,000 planholders for the conversion of the company from a purely pre-need entity into a holding company. The company will be converted into a cooperative that will have pre-need plans as one of its products.

While the conversion plan is being fine-tuned, the interest of planholders will continue to be preserved and enhanced since TPG will still be maintaining its pre-need license.

When TPG is finally converted into a holding company, planholders will be rewarded because the planholders’ educational plans will be converted into common and preferred shares in the new company, thus converting the planholders into owners of the new company who shall be entitled to their share of operating profits.

TPG said the liabilities of open-ended education plans must be fixed as a first step to solving the problems caused by uncontrolled tuition increases.

TPG said the program, which proposes a 15 percent cap on the average return on gross price for planholders, ensures equitable pay-out to both availing and non-availing planholders.

TPG is likewise in the final stages of completing a program that calls for preserving the company’s trust fund and reserving a portion of planholders’ availment benefits as equity in the company.

The non-cash portion of the redefined payouts will be in shares given to planholders who will be transformed into shareholders as the company restructures and make them majority owners. With liabilities fixed, the company will be able to declare operating income which will be rewarded back to planholders/shareholders in the form of dividends in some pre-determined time.

The SEC has been keeping a close watch on pre-need companies following the collapse of the pre-need firms Pacific Plans, Platinum Plans and College Assurance Plans Inc. to safeguard the interest of the investing public.

TPG’s STEP-UP program was adopted following a resolution submitted by the Philippine Federation of Pre-Need Plan Companies Inc. (PFPPCI) to the SEC, calling for member firms to put a ceiling on open-ended education benefits.

Industry estimates show that without a ceiling on availment returns, only one out of 20 open-ended plan scholars stands a chance of going to school.